Islamic banking is widely hailed as being the fastest-growing financial field, at roughly 15 to 20 percent each year, by many banking experts. However, Singapore has been unable to take advantage of the sector, which is expected to reach $1.1 trillion globally in 2012.
The government has tried to spur interest within the nation, as the Monetary Authority of Singapore (MAS) has hosted the World Islamic Banking Conference – Asia Summit several times. It has also established a sukuk program along with offerings, but these have been minor in relation to other nations that are focusing on the sector.
A MAS spokeswoman said, “MAS’s main focus is to create a conducive environment for the sustainable growth of the Islamic financial services industry.” She went on to say that Singapore’s Islamic banking industry is slowly growing, and insisted that there is an untapped demand for sharia-compliant products within the nation.
Singapore is a strong financial center, but it trails behind Malaysia’s Islamic finance market due to Malaysia’s strong domestic demand. In addition to individual investors, many institutions in Malaysia are Muslim-owned and therefore look towards sharia-compliant financial solutions. Singapore’s corporate community does not have the same demographics.
As a result, bankers in Singapore have chosen to look towards GCC countries for banking clients.
Singapore already has a robust relationship with the GCC, and trading between the two grew 40 percent last year to 62 billion Singapore dollars. However, Gulf investors have proved hesitant when it came to Singapore’s businesses. Firstly, like most investors, they tend to seek out companies they are familiar with. Secondly, Singapore’s economic and liquidity problems have been sources of concern for many investors.
Many bankers in Singapore are trying to encourage the nation’s Islamic banking industry, perhaps in vain. While it is smart for financial institutions to break into this lucrative and fast-growing business, in some places the demand just is not strong enough to maintain an industry.